Is JPMorgan Chase a Buy At These Prices?

With shares of JPMorgan Chase & Co. (NYSE:JPM) trading around $57, is JPM an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

JPMorgan Chase is a financial holding company that provides various financial services worldwide. The company is engaged in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing, asset management, and private equity. Financial services companies like JPMorgan Chase are essential for well-functioning economies around the world.

JPMorgan today reported net income for the fourth quarter of 2013 of $5.3 billion, compared with net income of $5.7 billion in the fourth-quarter of 2012. Earnings per share were $1.30, compared with $1.39 in the fourth-quarter of 2012. Revenue for the quarter was $24.1 billion, down 1 percent compared with the prior year. The Firm’s return on tangible common equity for the fourth-quarter of 2013 was 14 percent, compared with 15 percent in the prior year.

Jamie Dimon, Chair and Chief Executive Officer, commented on the financial results. “We are pleased to have made progress on our control, regulatory and litigation agendas and to have put some significant issues behind us this quarter. We reached several important resolutions — Global RMBS, Gibbs & Bruns, and Madoff. It was in the best interests of our company and shareholders for us to accept responsibility, resolve these issues and move forward. This will allow us to focus on what we are here for: serving our clients and communities around the world. We remained focused on building our four leading franchises, which all continued to deliver strong underlying performance, for the quarter and the year.”

T = Technicals on the Stock Chart Are Strong

JPMorgan Chase stock has done relatively well in the past couple of years. However, the stock is currently pulling back and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, JPMorgan Chase is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

JPM

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of JPMorgan Chase options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

JPMorgan Chase options

17.01%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

February Options

Flat

Average

March Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on JPMorgan Chase’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for JPMorgan Chase look like and more importantly, how did the markets like these numbers?

2014 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-6.47%

-112.14%

32.23%

33.61%

Revenue Growth (Y-O-Y)

-7.02%

-7.67%

13.67%

-3.57%

Earnings Reaction

0.33%*

-0.01%

-0.30%

-0.60%

JPMorgan Chase has seen mixed earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with JPMorgan Chase’s recent earnings announcements.

* As of this writing

P = Weak Relative Performance Versus Peers and Sector

How has JPMorgan Chase stock done relative to its peers, Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and sector?

JPMorgan Chase

Bank of America

Citigroup

Wells Fargo

Sector

Year-to-Date Return

-1.09%

7.13%

3.61%

0.59%

3.56%

JPMorgan Chase has been a poor relative performer, year-to-date.

Conclusion

JPMorgan Chase is a bellwether in the banking space that forms an essential part of the United States financial system. The company reported earnings that left investors pleased. The stock has done relatively well in recent months, but is currently pulling back. Over the last four quarters, earnings have been mixed while revenues have been decreasing. Relative to its peers and sector, JPMorgan Chase has been a poor year-to-date performer. WAIT AND SEE what JPMorgan Chase does this quarter.

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